Frequently Asked Questions: Oklahoma Energy Jobs Act of 2017
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Frequently Asked Questions | Oklahoma Energy Jobs Act of 2017
What is the Oklahoma Energy Jobs Act of 2017?
The Oklahoma Energy Jobs Act of 2017 (SB 867) is a commonsense bill to modernize Oklahoma’s oil and gas laws to support recent innovation in long lateral drilling of horizontal wells. It updates the 2011 Shale Reservoir Development Act by striking the word “shale” in state law to allow long lateral drilling in all geological formations in Oklahoma.
If passed and signed into law, the Oklahoma Energy Jobs Act would allow the oil and natural gas industry to accomplish the following within the first year of implementation:
- Generate $490 million in additional royalty payments. With the School Land Trust being the largest royalty owner in Oklahoma, this will generate new direct funding for Oklahoma’s public schools.
- Generate $229.6 million in additional state and local revenue directly from the oil and natural gas industry. (This is a compilation of revenue from gross production tax as well as direct sales tax and income tax generated from drilling activity.
- Create an additional 5,900 oil and natural gas jobs that will support 13,700 indirect Oklahoma jobs.
- Fuel $5.8 billion in additional direct and indirect economic activity in Oklahoma’s communities.
Is innovation in horizontal drilling impacting small vertical producers in Oklahoma?
The era of large-scale development of Oklahoma minerals through small, vertical wells has come to a close as more efficient horizontal recovery methods prove feasible. Last year, more than 80 percent of wells drilled in Oklahoma were horizontal wells according to data from the Oklahoma Corporation Commission (OCC).
Over the past five years, due to the technological revolution, vertical production has declined by 110 million barrels of oil equivalent (mmboe) per year and vertical well count has declined by 8,000 wells. Meanwhile, horizontal production surpassed vertical production as of 2015, and utilizes less than a fourth of the wells and a fraction of the surface impact.
As industry has been shifting its practices, OCC has fine-tuned protections for vertical well owners/operators. The Oklahoma Energy Jobs Act would also increase protections and would mandate that vertical producers be allowed to continue to develop their vertical units without being required to participate in horizontal development.
Furthermore, vertical well operators can petition the Commission to intervene if a horizontal well operator violates regulations involving spacing units, pooling, and between-well spacing. OCC’s Administrative Law Judges regularly allow any party to make a statement on the record, even without an attorney.
How does the long lateral drilling of horizontal wells increase revenue opportunities for the state and royalty owners and result in less surface disturbance for surface owners than a standard horizontal well or conventional vertical well?
Long lateral wells allow more efficient production of the mineral estate and reduce waste to generate more profit for royalty owners and more revenue for the state. In addition, utilizing long laterals on a multi-well pad means that 2, 10, 20 or more wells can be drilled from a single, compact piece of land—reducing land use by more than 50 percent when compared to a single well pad.
If industry is successfully accessing abundant amounts of oil and natural gas in shale already with long lateral drilling practices, why does it want to extend its capability to develop other rock formations?
There are many additional geologic formations other than shale that can be developed with long lateral horizontal drilling. For instance, of the 18 geologic formations in the Anadarko Basin, where the SCOOP and STACK plays exist, 10-12 of those layers are not composed of shale. The Oklahoma Energy Jobs Act would allow active oil and gas producers to access the abundant oil and natural gas resources in those other layers with the more effective long laterals. Otherwise, in order to develop those layers, industry would have to drill multiple shorter horizontal wells or vertical wells into these non-shale formations, which is less effective and cost-efficient and creates a greater, unnecessary use of the land. Instead of drilling excessive numbers of wells on additional acres of land to access these non-shale formations, companies simply are not developing these layers.
Another example in the Anadarko Basin, there are some active drillers who lease acreage on each side of the Oklahoma-Texas border to access a geologic formation that is not shale. However, their drilling capital is spent only in Texas because Texas allows long lateral drilling in non-shale formations. While these companies would like to drill these wells in Oklahoma due to our stable tax and regulatory environment, outdated state regulations are holding them back. This puts Oklahoma at a competitive and economic disadvantage for investment against other states with similar oil and gas resources.
Why did the 2011 Shale Reservoir Development Act only allow long lateral drilling of horizontal wells in shale formations and not all geologic formations in Oklahoma?
At the time of the Shale Reservoir Development Act, horizontal drilling was known for being a successful drilling method in shale formations. Innovation in horizontal drilling has rapidly advanced over the past seven years and has allowed industry to explore and produce oil and natural gas cost-effectively in geologic formations other than shale.
Meanwhile state law has remained stagnant. The 2011 law made way for industry to double oil production in Oklahoma and increase natural gas production by 50 percent. It’s time to update Oklahoma’s law and accelerate additional economic growth by allowing long laterals in non-shale formations.
How does Oklahoma’s limitation of long lateral drilling to only shale formations compare to other states?
Several states allow long lateral drilling without restricting it to a geologic formation. Oklahoma’s largest oil and gas operators also have an active presence in Texas, Colorado, North Dakota, Utah, and New Mexico, where they are using long lateral drilling to develop oil and natural gas in non-shale formations. There are many other states where long lateral drilling is practiced as well.
Does horizontal drilling induce seismic activity?
The Oklahoma Geological Survey (OGS) and the Oklahoma Corporation Commission (OCC) have said their focus on addressing seismic activity in Oklahoma is centered on the use of saltwater disposal wells and NOT on hydraulic fracturing or horizontal drilling activity. The state has taken steps, in collaboration with the scientific community and with cooperation from industry, to permanently cap volumes in disposal wells. Since June 2015, the frequency of seismic events has rapidly declined by more than two-thirds according to OGS data.
In December 2016, the OCC announced it was taking a “proactive” step to put guidelines in place for anomalous seismic activity that has occurred near completion operations. In the announcement, OGS Director Dr. Jeremy Boak said, “Unlike the strong earthquake activity in [Areas of Interest] linked to disposal activity, response to seismic activity that might be related to hydraulic fracturing can be more precisely defined and rapidly implemented.” Dr. Boak has called these quakes “small and manageable,” and said there have been few – if any – confirmed above a magnitude 3.0.
OKOGA member companies are actively monitoring their operations, many with state-of-the-art seismic arrays, and adjusting in real time using methods that have proven effective in Ohio and British Columbia. For more information, please visit http://okoga.com/seismicity/